JORDAN'S OIL SUPPLY NEEDS

C O N F I D E N T I A L SECTION 01 OF 02 AMMAN 005186

SIPDIS

TREASURY FOR OASIA/A DEMAMPOULUS

E.O. 12958: DECL: 08/15/2008
TAGS: EFIN ENRG IZ JO
SUBJECT: JORDAN'S OIL SUPPLY NEEDS

REF: AMMAN 4835

Classified By: David Hale, Charge d'Affairs, ai. Reasons 1.5 (b) (d)


1. (c) Summary. The Jordanian Oil Ministry believes that
Kuwait has agreed to continue supplying Jordan with 25,000
barrels of crude oil per day through September, with Kuwait
refining the crude on behalf of Jordan. Along with the
50,000 bpd Saudi oil grant -- which the Jordanians expect to
continue into 2004 -- plus UAE cash transfers, this should be
sufficient for Jordan to meet its petroleum supply needs this
year. Progress is also being made on procuring oil from Iraq
and increasing natural gas consumption. How Jordan will meet
its oil needs in 2004 remains a question, but its currently
strong finances put the country in a good position to manage
a transition to paying market prices. End Summary.

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Kuwait Grant Through September
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2. (c) The number two official in the Ministry of Energy,
Secretary General Khaldoun Qteishat, told us on August 14

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that recent Jordan-Kuwait meetings resulted in an oral
agreement that Kuwait would extend to its 25,000 bdp crude
oil grant by three months, i.e. through September. Since the
Kuwaitis were unable to provide the cash equivalent of the
oil, as requested by Jordan, they further agreed that Kuwait
would refine this amount on behalf of Jordan, with any excess
over Jordan's needs being sold by Kuwait with the proceeds
going to Jordan. (This is necessary since the properties of
Kuwaiti oil make it difficult to refine at Jordan's Zarqa
refinery.) Jordan pays for transportation of the refined
products from Kuwait to Jordan. While these generalities
were agreed, Qteishat said the practicalities remained murky
to the Jordanians. They had recently transmitted a request
for refined products to Kuwaiti counterparts and are waiting
for a response.

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Saudi Grant Likely to Extend into 2004
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3. (c) Deliveries of Saudi Arabia's 50,000 bdp oil grant
continue to go smoothly, Qteishat said. The Zarqa refinery
has no problem refining Saudi oil. Delivery is made at
Yanbu, with Jordan picking up transportation costs to Aqaba.
Qteishat said it had been agreed that the grant would
continue through the end of the year. He thought there was a
99% probability that it would be extended into 2004, but
noted that this was also based on oral promises; Jordan has
nothing in writing.

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UAE Cash Continues to Flow
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4. (c) The balance of Jordan's 90-100,000 bpd crude oil
needs are being met by crude purchases at Yanbu at the market
price. As in the case of Kuwait, the UAE grant of the cash
equivalent of 25,000 bpd had been extended through September.
Qteishat understood that this grant was being used for the
purchases at Yanbu, but said the Finance Ministry was
handling these transactions.

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Progress Made on Iraq Purchases
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5. (c) Following up on recent meetings with Iraq's oil
ministry (reftel),Qteishat said Jordan had recently sent to
Baghdad a request for the purchase of crude and refined
products. He said payment would be at the standard market
price Iraq charges all other buyers. Delivery would be to
Aqaba by ship from Mina al-Bakr. Jordan would prefer to
resume truck deliveries because of the lower cost, port
congestion in Aqaba, and for environmental reasons, but the
Iraqis, he said, are currently unable to comply for technical
reasons. (Qteishat thought this had to do with damaged
loading platforms.)

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Natural Gas Coming On-line
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6. (c) Finally, Qteishat said Egyptian natural gas
deliveries to Aqaba had started following the July 27
inauguration of the new pipeline. Gas is now being used to
drive one of the six turbines. All six should be gas fed by
year end. According to Qteishat, this would not reduce
Jordan's crude oil import needs noticeably, since the same
about of crude would be required to refine into other
products. However, it would result in a surplus of heavy
fuel oil that Jordan would export. This would create a net
financial savings for Jordan, which, he said, was difficult
to estimate given the complex formula used to price the gas.
(IMF sources have told us the actual savings would be
meaningful, but not large in the context of Jordan's balance
of payments.)

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Comment
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7. (c) Comment: If implemented as the Jordanians believe,
these arrangements would seem to meet Jordan's crude oil
needs through the end of the year. As the Central Bank
governor also observed to the charge August 14, the big
question mark was 2004. The governor said that he and his
colleagues were planning on the assumption that Jordan would
have to pay full market prices next year. He thought,
however, that Jordan was in a good financial position to be
able to manage this transition, thanks, in part, to U.S.
assistance.


8. (u) Baghdad minimize considered.
HALE